Retail billionaire Mike Ashley’s Frasers (FRAS) is in talks to buy beleaguered department store Debenhams from the administrators.
A rescue deal for the Covid-19 casualty would tighten Newcastle United owner Ashley’s grip on the distressed UK high street.
Yet despite its history of saving distressed brands, hard-negotiator Frasers warned there is ‘no certainty that any transaction will take place, particularly if discussions cannot be concluded swiftly’.
Last week, just a day after Topshop-owner Arcadia collapsed into administration, Debenhams lurched into liquidation in a disaster for the high street jeopardising some 12,000 jobs.
AN ADDED DISTRACTION?
With JD Sports Fashion (JD.) having terminated its exclusive rescue talks with Debenhams, Sports Direct-to-House of Fraser-owner Frasers has kickstarted discussions, though today’s 2.9% share price decline to 421.2p suggests investors are concerned Debenhams is a distraction Ashley could do without.
In a short statement, Frasers confirmed discussions are underway with the administrators regarding a possible rescue of Debenhams’ UK operations.
‘Whilst Frasers Group hopes that a rescue package can be put in place and jobs saved, time is short and the position is further complicated by the recent administration of the Arcadia Group, Debenhams’ biggest concession holder’, explained Frasers.
Despite years of poor financial performance, reflecting underinvestment in its store estate and a failure to keep pace with the likes of Primark, Zara and online disruptors, Debenhams has long held fascination for Ashley, although his £150 million equity stake was wiped out this year when US hedge fund Silver Point Capital took control of the embattled retailer.
The Sunday Times suggests that Frasers is attempting to cut a deal that could value Debenhams at more than £200 million.
THE SHORE CAPITAL VIEW
Shore Capital believes that any transaction with Frasers would ‘probably see a portfolio of Debenhams operated under a 12 month licence. We also wonder how many Debenhams stores that will survive long term, alongside Frasers’ House of Fraser fascia. Many of the stores sit adjacent to each other.’
The broker believes that JD Sports walked away ‘having considered the issues, noting that the capital expenditure required and increased execution and reputational risks would come to the fore. The change in ownership of Arcadia, perhaps as pure-play brands was the final straw, in our view.’
Shore Capital concluded that a ‘new high street jigsaw is being constructed. Covid has accelerated the structural change but there has been too much retail capacity and with online non-food sales now 40% of the mix, this is the start of the shake-out of the weaker brands. The store staff of Debenhams will be hoping for some good news, in time for Christmas, this week. As we have said, these developments will shape the future of high streets and shopping centres in 2021 and beyond.’
